<PAGE>

                                                                   EXHIBIT 10(e)
                                                                   -------------

                                   AGREEMENT
                                   ---------

     THIS AGREEMENT, dated as of August 7, 2000, is made by and between,
Armstrong Holdings, Inc., a Pennsylvania corporation (the "Company"), and
                                                           -------
Michael D. Lockhart (the "Executive").
                          ---------

     WHEREAS, the Board considers it essential to the best interests of the
Company to foster the continued employment of key management personnel; and

     WHEREAS, the Board recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company; and

     WHEREAS, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including the Executive, to their assigned duties without
undue concern for their personal financial and employment security arising from
the possibility of a Change in Control;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby, the Company and the
Executive hereby agree as follows:

     1. Defined Terms. The definitions of capitalized terms used in this
        -------------
Agreement are provided in the last Section hereof.

     2. Term of Agreement. This Agreement shall commence on the date hereof and
        -----------------
shall continue in effect through the third anniversary of such date; provided,
                                                                     --------
however, that commencing on the third anniversary and each anniversary
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thereafter, the term of this Agreement shall be extended for one additional year
unless, if not later than 180 days prior to such anniversary, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control shall have occurred prior to such anniversary; and further provided,
                                                           ------- --------
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six (36) months beyond the month in which such Change in Control
occurred.

     3. Company's Covenants Summarized. In order to induce the Executive to
        ------------------------------
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 10.1
hereof, no amount or benefit shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the term of
this Agreement. This Agreement shall not be construed as creating an express or
implied contract of employment and,
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except as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the Company.

     4.   The Executive's Covenants. The Executive agrees that, subject to the
          -------------------------
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
after the date of such Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death or Disability, or (iv) the
termination by the Company of the Executive's employment for any reason.

     5.   Compensation Other Than Severance Payments.
          ------------------------------------------

     5.1. Following a Change in Control and during the term of this Agreement,
during any period that the Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to physical or mental
illness, the Company shall pay the Executive's full salary to the Executive at
the rate in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.

     5.2. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect immediately prior to the Change in Control or
at the time the Notice of Termination is given, whichever is greater, together
with all compensation and benefits to which the Executive is entitled in respect
of all periods preceding the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements.

     5.3. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay to the Executive the Executive's normal post-termination compensation
and benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Change in Control or, if more
favorable to the Executive, as in effect immediately prior to the Date of
Termination.

     6.   Severance Payments.
          ------------------

     6.1. The Company shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the termination of the Executive's
                  ------------------
employment following a Change in Control and during the term of this Agreement,
in addition to any payments and benefits to which the Executive is entitled
under Section 5 and 8 hereof, unless such termination is (i) by the Company for
Cause, (ii) by reason of death or Disability, or (iii) by the Executive without
Good Reason. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated by the Company without Cause or by the

                                      -2-
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Executive with Good Reason following a Change in Control if (i) the Executive's
employment is terminated without Cause prior to a Change in Control which
actually occurs during the term of this Agreement and such termination was at
the request or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in Control, (ii) the
Executive terminates his employment with Good Reason prior to a Change in
Control which actually occurs during the term of this Agreement and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, (iii) the Executive's employment is terminated without
Cause prior to a Change in Control and the Executive reasonably demonstrates
that such termination is otherwise in connection with or in anticipation of a
Change in Control which actually occurs during the term of this Agreement, or
(iv) the Executive's employment is terminated without Cause after a Potential
Change in Control of the type described in paragraphs (I) or (IV) of the
definition of "Potential Change in Control."

          (A) In lieu of any further salary payments to the Executive for
     periods subsequent to the Date of Termination and in lieu of any severance
     benefit otherwise payable to the Executive, the Company shall pay to the
     Executive a lump sum severance payment, in cash, equal to three (3) times
     the sum of (i) the higher of the Executive's annual base salary in effect
     immediately prior to the occurrence of the event or circumstance upon which
     the Notice of Termination is based or the Executive's annual base salary in
     effect immediately prior to the Change in Control (the "Change in Control
                                                             -----------------
     Salary"), and (ii) the higher of (x) the highest annual bonus earned by the
     ------
     Executive pursuant to any annual bonus or incentive plan maintained by the
     Company in respect of the three (3) years immediately preceding that year
     in which the Date of Termination occurs or (y) the annual target bonus in
     respect of the year in which the Change in Control occurs (the "Change in
                                                                     ---------
     Control Bonus").
     -------------

          (B) Notwithstanding any provision of any annual incentive plan to the
     contrary, the Company shall pay to the Executive a lump sum amount, in
     cash, equal to a pro rata portion to the Date of Termination of the value
     of the target incentive award under such plan for the then uncompleted
     period under such plan, calculated by multiplying the Executive's target
     award by the fraction obtained by dividing the number of full months and
     any fractional portion of a month during such performance award period
     through the Date of Termination by the total number of months contained in
     such performance award period.

          (C) Notwithstanding any provision to the contrary within paragraphs
     (A) and (B) of this Section 6.1, the Company shall honor any election that
     the Executive makes with respect to the timing of any benefit payments due
     under this section (provided the Executive makes the election more than 90
     days before a Change in Control and the period over which payments are
     elected to be made ends not more than 15 years after the Change in
     Control). In any event, not later than ten business days after a Change in
     Control, the Company shall (i) establish an irrevocable grantor trust (the
     "Trust") designed in accordance with Revenue Procedure 92-64 and having a
     trustee independent of the Company, (ii) assign to the Trust the Company's
     interest in any policy or policies insuring the Executive under any
     insurance policy insuring the life of the Executive under any
     "split-dollar" or corporate-owned insurance arrangement in effect between
     the Executive and the Company, (iii) deposit in said Trust an amount
     sufficient to pay all

                                      -3-
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     remaining premiums owed by the Company on such insurance policies (with the
     Trust being required to pay such premiums), and all amounts that could
     become payable after the Change in Control pursuant to either paragraphs
     (A) or (B) of this Section 6.1 or pursuant to any other plan or program
     under which the Executive may be entitled to collect deferred compensation,
     supplemental retirement benefits, or welfare benefits after the date of the
     Change in Control, and (iv) provide the trustee of the Trust with a written
     direction to hold said amount and any investment return thereon in a
     segregated account for the benefit of the Executive, and to follow the
     procedures set forth herein as to the payment of such amounts from the
     Trust. During the 39-consecutive month period after a Change in Control,
     the Employee may provide the trustee of the Trust with a written notice
     directing that the trustee pay to the Executive an amount designated in the
     notice as being payable pursuant to this Agreement. Within three business
     days after receiving said notice, the trustee of the Trust shall pay such
     amount to the Executive, and coincidentally shall provide the Company or
     its successor with notice of such payment. Upon the earlier of the Trust's
     final payment of all amounts due under paragraphs (A) and (B) of this
     Section 6.1 or the date 36 months after the Change in Control, the trustee
     of the Trust shall pay to the Company the entire balance remaining in the
     segregated account maintained for the benefit of the Employee. The Employee
     shall thereafter have no further interest in the Trust.

          (D) In addition to the retirement benefits to which the Executive is
     entitled under each Pension Plan or any successor plan thereto, the Company
     shall pay the Executive a lump sum amount, in cash, equal to the excess of
     (i) the actuarial equivalent of the aggregate retirement pension (taking
     into account any early retirement subsidies associated therewith and
     determined as a straight life annuity commencing at the date (but in no
     event earlier than the third anniversary of the Date of Termination) as of
     which the actuarial equivalent of such annuity is greatest) which the
     Executive would have accrued under the terms of all Pension Plans (without
     regard to any amendment to any Pension Plan made subsequent to the earlier
     of a Potential Change in Control or a Change in Control and on or prior to
     the Date of Termination, which amendment adversely affects in any manner
     the computation of retirement benefits thereunder), determined as if the
     Executive were fully vested thereunder and had accumulated (after the Date
     of Termination) thirty-six (36) additional months of service credit
     thereunder and had been credited under each Pension Plan during such period
     with compensation at the higher of (1) the Executive's compensation (as
     defined in such Pension Plan) during the twelve (12) months immediately
     preceding the Date of Termination or (2) the Executive's compensation (as
     defined in such Pension Plan) during the twelve (12) months immediately
     preceding the Change in Control, over (ii) the actuarial equivalent of the
     aggregate retirement pension (taking into account any early retirement
     subsidies associated therewith and determined as a straight life annuity
     commencing at the date (but in no event earlier than the Date of
     Termination) as of which the actuarial equivalent


                                      -4-
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     of such annuity is greatest) which the Executive had accrued pursuant to
     the provisions of the Pension Plans as of the Date of Termination. For
     purposes of this Section 6.1(D), "actuarial equivalent" shall be determined
     using the same assumptions utilized under the aggregate retirement pension
     (taking into account any early retirement subsidies associated therewith
     and determined as a straight life annuity commencing at the date (but in no
     event earlier than the Date of Termination) as of which the actuarial
     equivalent of such annuity is greatest) which the Executive had accrued
     pursuant to the provisions of the Pension Plans as of the Date of
     Termination; provided that the actuarial equivalent of such payment shall
     reduce the amount of the benefit enhancement to which the Executive may be
     entitled under the Company's Retirement Benefit Equity Plan due to enhance
     change in Control benefits under Article I, Section(35) Article VI, Section
     (2), Article VI Section (7), and Article VII, Section (6) of the Company's
     Retirement Income Plan. For purposes of this Section 6.1(D), "actuarial
     equivalent" shall be determined using the same assumptions utilized under
     the Company's Retirement Income Plan immediately prior to the Change in
     Control, to determine lump sum present values under Article VII, Section
     (7) of the Company's Retirement Income Plan.

          (E) For the thirty-six (36) month period immediately following the
     Date of Termination, the Company shall arrange to provide the Executive
     (which includes the Executive's eligible dependents for purposes of this
     paragraph (E)) with life, disability, accident and health insurance
     benefits substantially similar to those which the Executive was receiving
     immediately prior to the Notice of Termination (without giving effect to
     any amendment to such benefits made subsequent to the earlier of a
     Potential Change in Control or a Change in Control which amendment
     adversely affects in any manner the Executive's entitlement to or the
     amount of such benefits); provided, however, that, unless the Executive
                               --------  -------
     consents to a different method, such health insurance benefits shall be
     provided through a third-party insurer. Benefits otherwise receivable by
     the Executive pursuant to this Section 6.1(E) shall be reduced to the
     extent comparable benefits are actually received by or made available to
     the Executive by a subsequent employer without cost during the thirty-six
     (36) month period following the Executive's termination of employment (and
     any such benefits actually received by or made available to the Executive
     shall be reported to the Company by the Executive).

          (F) If the Executive would have become entitled to benefits under the
     Company's post-retirement health care or life insurance plans (as in effect
     immediately prior to a Potential Change in Control, the Change in Control
     or the Date of Termination, whichever is most favorable to the Executive)
     had the Executive's employment terminated at any time during the period of
     thirty-six (36) months after the Date of Termination, the Company shall
     provide such post-retirement health care or life insurance benefits to the
     Executive (subject to any employee contributions required under the terms
     of such plans at the level in effect immediately prior to the Change in
     Control or the Date of Termination, whichever is more favorable to the
     Executive) commencing on the later of (i) the date that such coverage would
     have first become available or (ii) the date that benefits described in
     subsection (E) of this Section 6.1 terminate. From the end of the period
     described in the preceding sentence until the Executive and his spouse (if
     any, as of the Change in Control) become entitled to Medicare coverage, the
     Company will permit them to purchase, at COBRA rates or less, any health
     care coverage that they were receiving on the date of the Change in
     Control; provided that the Company may instead hold them harmless from any
     cost and associated income taxes that they incur in order to purchase
     substitute health insurance at premiums above the COBRA premiums that they
     would have paid to the Company.

                                      -5-
<PAGE>

          (G) The Company will pay the Executive, at a daily salary rate
     calculated from the higher of the Executive's annual base salary in effect
     immediately prior to the occurrence of the event or circumstance upon which
     the Notice of Termination is based or the Executive's annual base salary in
     effect immediately prior to the Change in Control, an amount equal to all
     unused vacation days which would have been earned had the Executive
     continued employment through December 31 of the year in which the Date of
     Termination occurs.

          (H) The Company shall pay the reasonable fees and expenses of a full
     service nationally recognized executive outplacement firm until the earlier
     of the date the Executive secures new employment or the date which is
     thirty-six (36) months following the Executive's Date of Termination;
     provided, that in no event shall the aggregate amount of such payment be
     greater than 20% of the Executive's Change in Control Salary.

      6.2.

          (A) Anything in this Agreement to the contrary notwithstanding, in the
     event it shall be determined that any payment or distribution by the
     Company to or for the benefit of the Executive (whether paid or payable or
     distributed or distributable pursuant to the terms of this Agreement or
     otherwise) (a "Payment") would be subject to the excise tax imposed by
                    -------
     section 4999 of the Code or any interest or penalties are incurred by the
     Executive with respect to the excise tax (such excise tax, together with
     any such interest and penalties, are hereinafter collectively referred to
     as the "Excise Tax"), then the Executive shall be entitled to receive an
             ----------
     additional payment (a "Gross-Up Payment") in an amount such that after
                            ----------------
     payment by the Executive of all taxes (including any interest or penalties
     imposed with respect to such taxes), including, without limitation, any
     income taxes (and any interest and penalties imposed with respect thereto)
     and Excise Tax imposed on the Gross-Up Payment, the Executive retains an
     amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
     Payments.

          (B) Subject to the provisions of Section 6.2(C), all determinations
     required to be made under this Section 6.2, including whether and when a
     Gross-Up Payment is required and the amount of such Gross-Up Payment, shall
     be made by a nationally recognized accounting firm designated by the
     Company (the "Accounting Firm") which shall provide detailed supporting
                   ---------------
     calculations both to the Company and the Executive within fifteen (15)
     business days after there has been a Payment, or such earlier time as
     requested by the Company. In the event that the Accounting Firm is serving
     as accountant or auditor for the individual, entity or group effecting the
     Change in Control, the Company shall appoint another nationally recognized
     accounting firm to make the determinations required hereunder (which
     accounting firm shall then be referred to as the Accounting Firm
     hereunder). All fees and expenses of the Accounting Firm shall be borne
     solely by the Company. Any Gross-Up Payment, as determined pursuant to this
     Section 6, shall be paid by the Company to the Executive within five days
     of the receipt of the Accounting Firm's determination. Any determination by
     the Accounting Firm shall be binding upon the Company and the Executive. As
     a result of the uncertainty in the application of section 4999 of the Code
     at the time of the initial determination by the


                                      -6-
<PAGE>

     Accounting Firm hereunder, it is possible that Gross-Up Payments which will
     not have been made by the Company should have been made ("Underpayment"),
                                                               ------------
     consistent with the calculations required to be made hereunder. In the
     event that the Company exhausts its remedies pursuant to Section 6.2(C) and
     the Executive thereafter is required to make a payment of any Excise Tax,
     the Accounting Firm shall determine the amount of the Underpayment that has
     occurred and any such Underpayment shall be promptly paid by the Company to
     or for the benefit of the Executive.

          (C) The Executive shall notify the Company in writing of any claim by
     the Internal Revenue Service that, if successful, would require the payment
     by the Company of the Gross-Up Payment. Such notification shall be given as
     soon as practicable but no later than ten (10) business days after the
     Executive is informed in writing of such claim and shall apprise the
     Company of the nature of such claim and the date on which such claim is
     requested to be paid. The Executive shall not pay such claim prior to the
     expiration of the 30-day period following the date on which it gives such
     notice to the Company (or such shorter period ending on the date any
     payment of taxes with respect to such claim is due). If the Company
     notifies the Executive in writing prior to the expiration of such period
     that it desires to contest such claim, the Executive shall:

               (i)   give the Company any information reasonably requested by
          the Company relating to such claim;

               (ii)  take such action in connection with contesting such claim
          as the Company shall reasonably request in writing from time to time,
          including, without limitation, accepting legal representation with
          respect to such claim by an attorney reasonably selected by the
          Company;

               (iii) cooperate with the Company in good faith in order
          effectively to contest such claim; and

               (iv)  permit the Company to participate in any proceedings
          relating to such claim;

     provided, however, that the Company shall bear and pay directly all costs
     and expenses (including additional interest and penalties) incurred in
     connection with such contest and shall indemnify and hold the Executive
     harmless, on an after-tax basis, for any Excise Tax or income tax
     (including interest and penalties with respect thereto) imposed as a result
     of such representation and payment of costs and expenses. Without
     limitation on the foregoing provisions of this Section 6.2(C), the Company
     shall control all proceedings taken in connection with such contest and, at
     its sole option, may pursue or forego any and all administrative appeals,
     proceedings, hearings and conferences with the taxing authority in respect
     of such claim and may, at its sole option, either direct the Executive to
     pay the tax claimed and sue for a refund or contest the claim in any
     permissible manner, and the Executive agrees to prosecute such contest to a
     determination before any administrative tribunal, in a court of initial
     jurisdiction and in one or more appellate courts, as the Company shall
     determine; provided, however, that if the Company directs the Executive to
                --------  -------
     pay such claim and sue for a refund, the Company


                                      -7-
<PAGE>

          shall advance the amount of such payment to the Executive, on an
          interest-free basis, and shall indemnify and hold the Executive
          harmless, on an after-tax basis, from any Excise Tax or income tax
          (including interest or penalties with respect thereto) imposed with
          respect to such advance or with respect to any imputed income with
          respect to such advance; and further provided that any extension of
          the statute of limitations relating to payment of taxes for the
          taxable year of the Executive with respect to which such contested
          amount is claimed to be due is limited solely to such contested
          amount. Furthermore, the Company's control of the contest shall be
          limited to issues with respect to which a Gross-Up Payment would be
          payable hereunder and the Executive shall be entitled to settle or
          contest, as the case may be, any other issue raised by the Internal
          Revenue Service or any other taxing authority.

                    (D) If, after the receipt by the Executive of an amount
          advanced by the Company pursuant to Section 6.2(C), the Executive
          becomes entitled to receive any refund with respect to such claim, the
          Executive shall (subject to the Company's complying with the
          requirements of Section 6.2(C)) promptly pay to the Company the amount
          of such refund (together with any interest paid or credited thereon
          after taxes applicable thereto). If, after the receipt by the
          Executive of an amount advanced by the Company pursuant to Section
          6.2(C), a determination is made that the Executive shall not be
          entitled to any refund with respect to such claim and the Company does
          not notify the Executive in writing of its intent to contest such
          denial of refund prior to the expiration of 30 days after such
          determination, then such advance shall be forgiven and shall not be
          required to be repaid and the amount of such advance shall offset, to
          the extent thereof, the amount of Gross-Up Payment required to be
          paid.

               6.3. The payments provided for in subsections (A), (B), (C), (D)
and (G) of Section 6.1 hereof shall be made not later than the thirtieth (30th)
day following the Date of Termination; provided, however, that if the amounts of
                                       --------  -------
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive of the minimum amount of such payments to which the Executive
is clearly entitled and shall pay the remainder of such payments (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event that the amount
of the estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to the Executive,
payable on the fifth (5th) business day after demand by the Company (together
with interest at 120% of the rate provided in section 1274(b)(2)(B) of the
Code). In the event the Company should fail to pay when due the amounts
described in subsections (A), (B), (C), (D) and (G) of Section 6.1 hereof, the
Executive shall also be entitled to receive from the Company an amount
representing interest on any unpaid or untimely paid amounts from the due date,
as determined under this Section 6.3 (without regard to any extension of the
Date of Termination pursuant to Section 7.3 hereof), to the date of payment at a
rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code.

               6.4. The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any


                                      -8-
<PAGE>

benefit or right provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of section 4999 of
the Code to any payment or benefit provided hereunder. Such payments shall be
made within five (5) business days after delivery of the Executive's written
requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.

     7.   Termination Procedures and Compensation During Dispute.
          ------------------------------------------------------

     7.1. Notice of Termination. After a Potential Change in Control or, if
          ---------------------
there is no Potential Change in Control, after a Change in Control and during
the term of this Agreement, any purported termination of the Executive's
employment (other than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other party hereto in
accordance with Section 11 hereof. For purposes of this Agreement, a "Notice of
                                                                      ---------
Termination" shall mean a notice which shall indicate the specific termination
-----------
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board which was called and held for
the purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good-faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.

     7.2. Date of Termination. "Date of Termination," with respect to any
          -------------------   -------------------
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).

     7.3. Dispute Concerning Termination. If within fifteen (15) days after any
          ------------------------------
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this Section 7.3), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be extended until the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
--------  -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.


                                      -9-
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     7.4. Compensation During Dispute. If a purported termination occurs
          ---------------------------
following a Change in Control and during the term of this Agreement and the Date
of Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation, benefit
and insurance plans in which the Executive was participating when the notice
giving rise to the dispute was given, until the Date of Termination, as
determined in accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.

     8.   Acceleration of Certain Stock-Based Benefits.
          --------------------------------------------

     (A)  Upon the occurrence of a Change in Control, all unvested options with
respect to the Company's stock held by the Executive shall vest and become
immediately exercisable and will be exercisable for a period ending on the later
of (i) the fifth anniversary of such Change in Control or (ii) the last date
that such option would otherwise be exercisable under the terms of the option
agreement or the plan pursuant to which such option was granted; provided, that
in no event shall any option be exercisable after the expiration of the original
term of the option.

     (B)  Upon the occurrence of a Change in Control, all unearned performance
restricted shares held by the Executive under the Company's Stock Plan shall be
deemed to have been earned to the maximum extent permitted under the Stock Plan
for any performance period not then completed and all earned but unvested
performance restricted shares, including those deemed to be earned pursuant to
this sentence, and all unvested restricted stock awards shall immediately vest
and the restrictions on all shares subject to restriction shall lapse.

     (C)  For purposes of the Stock Plan and any stock option plan pursuant to
which any stock options, performance restricted shares or restricted stock
awards have been issued, this Agreement, which has been approved by the
Compensation Committee of the Board, shall constitute an amendment of the
agreement or other instruments pursuant to which such stock options, performance
restricted shares and restricted stock awards were issued in accordance with the
terms of such plans. Notwithstanding the foregoing, in the event that this
Section 8(C) is determined for any reason to be inconsistent with the terms of
any plan pursuant to which such stock options, performance restricted shares and
restricted stock awards were issued, the terms of this Agreement shall supersede
the terms of such plan

     (D)  The Company will hold the Executive harmless against any and all
losses that he may directly or indirectly incur as a result of (i) any third
party claims brought against the Executive (other than by any taxing authority)
with respect to the Company's performance of, or (ii) the Company's failure to
perform any commitment made to the Executive in, this Section 8.

     9.   No Mitigation. The Company agrees that, if the Executive's employment
          -------------
with the Company terminates during the term of this Agreement, the Executive is
not required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Section 6 hereof or
Section 7.4 hereof. Further, the amount of any

                                     -10-
<PAGE>

payment or benefit provided for in this Agreement (other than Section 6.1(E)
hereof) shall not be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.

     10.   Successors; Binding Agreement.
           -----------------------------

     10.1. In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.

     10.2. This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.

     11.   Notices. For the purpose of this Agreement, notices and all other
           -------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address shown for the Executive in the personnel records of
the Company and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:

           To the Company:

           Armstrong Holdings, Inc.
           2500 Columbia Avenue
           Lancaster, Pennsylvania 17603
           Attention:  General Counsel

     12.   Miscellaneous. No provision of this Agreement may be modified, waived
           -------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of


                                     -11-
<PAGE>

compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
supersedes any other agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof which have been made by
either party. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania,
without regard to its conflicts of law provisions. All references to sections of
the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed. The obligations of
the Company and the Executive under Sections 6 and 7 hereof shall survive the
expiration of the term of this Agreement. If the Executive elects not to enter
into this Agreement, he will continue to be eligible for change in control
benefits provided under the Company's Employment Protection Plan (if
applicable), Retirement Income Plan and long-term incentive plans. The Executive
agrees that this Agreement replaces the benefits to which he may otherwise be
entitled to under the Company's Employment Protection Plan for salaried
employees. The Company agrees that it will not argue in any form for any purpose
that this Agreement constitutes an "employee benefit plan" within meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

     13. Validity. The invalidity or unenforceability of any provision of this
         --------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

     14. Counterparts. This Agreement may be executed in several counterparts,
         ------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

     15. Settlement of Disputes; Arbitration. All claims by the Executive for
         -----------------------------------
benefits under this Agreement shall be directed in writing to and determined by
the Committee, which shall give full consideration to the evidentiary standards
set forth in this Agreement. Any denial by the Committee of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Committee shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Committee a decision of the Committee
within sixty (60) days after notification by the Committee that the Executive's
claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Allegheny County, Pennsylvania in accordance with the rules for the resolution
of employment law disputes of the American Arbitration Association then in
effect; provided, however, that the evidentiary standards set forth in this
        --------  -------
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement. The Company shall reimburse the Executive for all costs and expenses
relating to litigation arising hereunder, including reasonable attorney's fees
and expenses, promptly upon receipt of a written


                                     -12-
<PAGE>

demand therefor and regardless of whether such litigation results in any
settlement or judgment or order in favor of any party.

     16. Definitions. For purposes of this Agreement, the following terms shall
         -----------
have the meanings indicated below:

         (A) "Accounting Firm" shall have the meaning stated in Section 6.2(B)
              ---------------
     hereof.

         (B) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
              ----------------
     under the Exchange Act.

         (C) "Board" shall mean the Board of Directors of the Company.
              -----

         (D) "Cause" for termination by the Company of the Executive's
              -----
     employment shall mean (i) conviction of the Executive for (or a plea of
     nolo contendre by the Executive with respect to) a felony or of a
     misdemeanor involving moral turpitude; or (ii) the deliberate engaging by
     the Executive in gross misconduct which is demonstrably and materially
     injurious to the Company, monetarily or otherwise, including but not
     limited to fraud or embezzlement by the Executive; or (iii) the deliberate
     and continued failure to substantially perform the duties and
     responsibilities of such Executive's office. For the purposes of this
     Agreement, no act, or failure to act, on the part of the Executive shall be
     considered "deliberate" unless done, or omitted to be done, by the
     Executive not in good faith and without reasonable belief that such action
     or omission was in the best interests of the Company. In the event of a
     dispute concerning the application of this provision, no claim by the
     Company that Cause exists shall be given effect unless the Company
     establishes to the Committee by clear and convincing evidence that Cause
     exists.

         (E) A "Change in Control" shall be deemed to have occurred if the
                -----------------
     event set forth in any one of the following paragraphs shall have occurred:

               (I)  any Person is or becomes the Beneficial Owner, directly or
          indirectly, of securities of the Company (not including in the
          securities beneficially owned by such Person any securities acquired
          directly from the Company or its affiliates) representing 20% or more
          of either the then outstanding shares of common stock of the Company
          or the combined voting power of the Company's then outstanding
          securities, excluding any Person who becomes such a Beneficial Owner
          in connection with a transaction described in clause (i) of paragraph
          (III) below; or

               (II) the following individuals cease for any reason to constitute
          a majority of the number of directors then serving: individuals who,
          on the date hereof, constitute the Board and any new director (other
          than a director whose initial assumption of office is in connection
          with an actual or threatened election contest, including but not
          limited to a consent solicitation, relating to the election of
          directors of the Company) whose appointment or election by the Board
          or nomination for election by the


                                     -13-
<PAGE>

          Company's shareholders was approved by a vote of at least two-thirds
          (2/3) of the directors then still in office who either were directors
          on the date hereof or whose appointment, election or nomination for
          election was previously so approved; or

               (III) there is consummated a merger or consolidation of the
          Company with any other corporation other than (i) a merger or
          consolidation which would result in the voting securities of the
          Company outstanding immediately prior to such merger or consolidation
          continuing to represent (either by remaining outstanding or by being
          converted into voting securities of the surviving entity or any parent
          thereof) at least 66 2/3% of the combined voting power of the voting
          securities of the Company or such surviving entity or any parent
          thereof outstanding immediately after such merger or consolidation, or
          (ii) a merger or consolidation effected to implement a
          recapitalization of the Company (or similar transaction) in which no
          Person is or becomes the Beneficial Owner, directly or indirectly, of
          securities of the Company (not including in the securities
          Beneficially Owned by such Person any securities acquired directly
          from the Company or its subsidiaries) representing 20% or more of
          either the then outstanding shares of common stock of the Company or
          the combined voting power of the Company's then outstanding
          securities; or

               (IV)  the shareholders of the Company approve a plan of complete
          liquidation or dissolution of the Company or there is consummated an
          agreement for the sale or disposition by the Company of all or
          substantially all of the Company's assets, other than a sale or
          disposition by the Company of all or substantially all of the
          Company's assets to an entity, at least 75% of the combined voting
          power of the voting securities of which are owned by shareholders of
          the Company in substantially the same proportions as their ownership
          of the Company immediately prior to such sale. Notwithstanding the
          foregoing, no "Change in Control" shall be deemed to have occurred if
          there is consummated any transaction or series of integrated
          transactions immediately following which the record holders of the
          common stock of the Company immediately prior to such transaction or
          series of transactions continue to have substantially the same
          proportionate ownership in an entity which owns all or substantially
          all of the assets of the Company immediately following such
          transaction or series of transactions.

          (F) "Change in Control Salary" shall have the meaning stated in
               ------------------------
     Section 6.1 hereof.

          (G) "Change in Control Bonus" shall have the meaning stated in Section
               -----------------------

     6.1 hereof.


                                     -14-
<PAGE>

          (H) "Code" shall mean the Internal Revenue Code of 1986, as amended
               ----
     from time to time.

          (I) "Committee" shall mean (i) the individuals (not fewer than three
               ---------
     in number) who, on the date six (6) months before a Change in Control,
     constitute the Management Development and Compensation Committee of the
     Board, plus (ii) in the event that fewer than three individuals are
     available from the group specified in clause (i) above for any reason, such
     individuals as may be appointed by the individual or individuals so
     available (including for this purpose any individual or individuals
     previously so appointed under this clause (ii)).

          (J) "Company" shall mean Armstrong Holdings, Inc. and, except in
               -------
     determining under Section 16(E) hereof whether or not any Change in Control
     of the Company has occurred, shall include its subsidiaries and any
     successor to its business and/or assets which assumes and agrees to perform
     this Agreement by operation of law, or otherwise.

          (K) "Date of Termination" shall have the meaning stated in Section 7.2
               -------------------
     hereof.

          (L) "Disability" shall be deemed the reason for the termination by the
               ----------

     Company of the Executive's employment, if, as a result of the Executive's
     incapacity due to physical or mental illness, the Executive shall have been
     absent from the full-time performance of the Executive's duties with the
     Company for a period of six (6) consecutive months, the Company shall have
     given the Executive a Notice of Termination for Disability, and, within
     thirty (30) days after such Notice of Termination is given, the Executive
     shall not have returned to the full-time performance of the Executive's
     duties.

          (M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
               ------------
     amended from time to time.

          (N) "Excise Tax" shall have the meaning stated in Section 6.2(A)
               ----------
     hereof.

          (O) "Executive" shall mean the individual named in the first paragraph
               ---------
     of this Agreement.

          (P) "Good Reason" for termination by the Executive of the Executive's
               -----------
     employment shall mean the occurrence (without the Executive's express
     written consent) after any Change in Control, or prior to a Change in
     Control under the circumstances described in clause (ii) of the second
     sentence of Section 6.1 hereof (treating all references in paragraphs (I)
     through (VIII) below to a "Change in Control" as references to a "Potential
     Change in Control"), of any one of the following acts by the Company, or
     failures by the Company to act, unless, in the case of any act or failure
     to act described in paragraph (I), (V) , (VI) or (VII) below, such act or
     failure to act is corrected prior to the Date of Termination specified in
     the Notice of Termination given in respect thereof:


                                     -15-
<PAGE>

               (I)   the assignment to the Executive of any duties inconsistent
          with the Executive's status as an executive officer of the Company or
          a substantial adverse alteration in the nature or status of the
          Executive's responsibilities, which in the Executive's reasonable
          judgment, represents a substantial reduction of the status, title,
          position or responsibilities from those in effect immediately prior to
          the Change in Control;

               (II)  a reduction by the Company in the Executive's annual base
          salary as in effect on the date hereof as the same may be increased
          from time to time;

               (III) the relocation of the Executive's principal place of
          employment to a location more than 30 miles from the Executive's
          principal place of employment immediately prior to the Change in
          Control (unless such relocation is closer to the Executive's principal
          residence) or the Company's requiring the Executive to be based
          anywhere other than such principal place of employment (or permitted
          relocation thereof) except for required travel on the Company's
          business to an extent substantially consistent with the Executive's
          present business travel obligations;

               (IV)  the failure by the Company to pay to the Executive any
          portion of the Executive's current compensation or to pay to the
          Executive any portion of an installment of deferred compensation under
          any deferred compensation program of the Company, within seven (7)
          days of the date such compensation is due;

               (V)   the failure by the Company to continue in effect any
          compensation plan in which the Executive participates immediately
          prior to the Change in Control which is material to the Executive's
          total compensation, including but not limited to the Company's Base
          Salary Plan, Management Achievement Plan, 1984 Long-Term Stock Option
          Plan for Key Employees, 1993 Long-Term Stock Incentive Plan, 1999
          Long-Term Incentive Plan, Armstrong Deferred Compensation Plan,
          Retirement Income Plan and Retirement Benefit Equity Plan, unless an
          equitable arrangement (embodied in an ongoing substitute or
          alternative plan) has been made with respect to such plan, or the
          failure by the Company to continue the Executive's participation
          therein (or in such substitute or alternative plan) on a basis not
          materially less favorable, both in terms of the amount or timing of
          payment of benefits provided and the level of the Executive's
          participation relative to other participants, as existed immediately
          prior to the Change in Control;

               (VI)  any material breach of any provision of this Agreement or
          any employment that the Executive may have with the Company;


                                     -16-
<PAGE>

               (VII)  the failure by the Company to continue to provide the
          Executive with benefits substantially similar to those enjoyed by the
          Executive under any of the Company's pension, savings, life insurance,
          medical, health and accident, or disability plans in which the
          Executive was participating immediately prior to the Change in
          Control, the taking of any action by the Company which would directly
          or indirectly materially reduce any of such benefits or deprive the
          Executive of any material fringe benefit enjoyed by the Executive at
          the time of the Change in Control, or the failure by the Company to
          provide the Executive with the number of paid vacation days to which
          the Executive is entitled on the basis of years of service with the
          Company in accordance with the Company's normal vacation policy in
          effect at the time of the Change in Control; or

               (VIII) any purported termination of the Executive's employment
          which is not effected pursuant to a Notice of Termination satisfying
          the requirements of Section 7.1 hereof; for purposes of this
          Agreement, no such purported termination shall be effective.

          Notwithstanding anything herein to the contrary, termination of
     employment by the Executive for any reason during the 30-day period
     commencing one (1) year anniversary of a Change in Control shall constitute
     Good Reason; provided however, that soley for purposes of this paragraph,
     the term Change in Control shall include a merger described by Section
     16(E)(III) in which the Company is the surviving corporation or parent
     corporation and the holders of the voting securities of the Company
     outstanding immediately prior to such merger represent less than 66 2/3% of
     the combined voting power of the securities of the Company outstanding
     immediately after such merger, only if an event described in Section
     16(E)(II) also occurs.

          The Executive's right to terminate the Executive's employment for Good
     Reason shall not be affected by the Executive's incapacity due to physical
     or mental illness. The Executive's continued employment shall not
     constitute consent to, or a waiver of rights with respect to, any act or
     failure to act constituting Good Reason hereunder. For purposes of any
     determination regarding the existence of Good Reason, any claim by the
     Executive that Good Reason exists shall be presumed to be correct unless
     the Company establishes to the Committee by clear and convincing evidence
     that Good Reason does not exist.

          (Q) "Gross-Up Payment" shall have the meaning stated in Section 6.2(A)
               ----------------
     hereof.

          (R) "Notice of Termination" shall have the meaning stated in Section
               ---------------------
     7.1 hereof.

          (S) "Payment" shall have the meaning stated in Section 6.2(A) hereof.
               -------

          (T) "Pension Plan" shall mean any tax-qualified, supplemental or
               ------------
     excess benefit pension plan maintained by the Company and any other
     agreement entered


                                     -17-
<PAGE>

     into between the Executive and the Company which is designed to provide the
     Executive with supplemental retirement benefits.

          (U) "Person" shall have the meaning given in Section 3(a)(9) of the
               ------
     Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
     except that such term shall not include (i) the Company or any of its
     subsidiaries, (ii) a trustee or other fiduciary holding securities under an
     employee benefit plan of the Company or any of its subsidiaries, (iii) an
     underwriter temporarily holding securities pursuant to an offering of such
     securities, (iv) a corporation owned, directly or indirectly, by the
     shareholders of the Company in substantially the same proportions as their
     ownership of stock of the Company, or (v) an entity or entities which are
     eligible to file and have filed a Schedule 13G under Rule 13d-l-(b) of the
     Exchange Act, which Schedule indicates beneficial ownership of 15% or more
     of the outstanding shares of common stock of the Company or the combined
     voting power of the Company's then outstanding securities.

          (V) "Potential Change in Control" shall be deemed to have occurred if
               ---------------------------
     the event set forth in any one of the following paragraphs shall have
     occurred:

                    (I)   the Company enters into an agreement, the
          consummation of which would result in the occurrence of a Change in
          Control;

                    (II)  the Company or any Person publicly announces an
          intention to take or to consider taking actions which, if consummated,
          would constitute a Change in Control;

                    (III) any Person becomes the Beneficial Owner, directly or
          indirectly, of securities of the Company representing 15% or more of
          either the then outstanding shares of common stock of the Company or
          the combined voting power of the Company's then outstanding securities
          (not including in the securities beneficially owned by such Person any
          securities acquired directly from the Company or its affiliates); or

                    (IV)  the Board adopts a resolution to the effect that, for
          purposes of this Agreement, a Potential Change in Control has
          occurred.

          (W) "Severance Payments" shall mean those payments described in
               ------------------
     Section 6.1 hereof.

          (X) "Stock Plan" shall mean the Company's Long-Term Stock Incentive
               ----------
     Plan and the Company's Stock Award Plan, as the same may be amended from
     time to time, and any successor plan or plans to such plans.

          (Y) "Underpayment" shall have the meaning stated in Section 6.2(B)
               ------------
     hereof.


                                     -18-
<PAGE>

          (Z) IN WITNESS WHEREOF, the parties have executed and delivered this
     Agreement as of the date first above written.

                       ARMSTRONG HOLDINGS, INC.


                       By:      ___________________________
                                Name:  Douglas L. Boles
                                Title: Executive Vice President, Human Resources


                       The undersigned, Armstrong World
                       Industries, Inc., agrees to be jointly
                       and severally bound by the terms
                       of this Agreement, including
                       specifically with respect to the
                       obligations of the Company hereunder.

                       ARMSTRONG WORLD INDUSTRIES, INC.


                       By:      ___________________________
                                Name:  Douglas L. Boles
                                Title: Executive Vice President, Human Resources


                       EXECUTIVE

                       ---------------------------------
                       Michael D. Lockhart





                                     -19-